Know your codesIndustry Best Practice
Growers are encouraged to understand their rights and obligations, and know where they sit in relation to the Horticulture Code and the Food and Grocery Code
In an environment where Australia’s two major supermarkets control two-thirds of the sector, competition policy is vital for ensuring an equitable playing field and allowing growers to receive a fair price for their produce. However, the horticultural sector is failing to utilise a powerful tool that was designed for this very purpose, due to a perceived threat of retribution.
APAL devoted the afternoon of the 2023 APAL Forum to discussing this issue, with a particular focus on the role played by the Horticulture Code and the Food and Grocery Code.
Power imbalances and unique challenges
APAL’s Head of Government Relations and Advocacy Jeremy Griffith said while retailer market power was a concern around the world, it was at its highest in New Zealand and Australia, where Coles’ and Woolworths’ rising profit margins, and share prices per earnings (PE) that outstripped both the banks and the big mining companies, were an indication of the entrenched security of long-term high returns.
“This flags a strong and dominant market position; a strong financial position when compared with the horticulture sector on the flip side,” Jeremy said.
The sector faces unique challenges that impact its market power, including:
- Perishable products: The more perishable the product, the weaker the position. Growers are often forced to make short-term decisions. In a standoff, the financial impact on the supermarkets is minimal, while growers have much more to lose.
- Limited exports: Having few options in terms of exports means increased exposure to major retailers.
- Value products: Along with milk and bread, supermarkets want to sell apples and pears at affordable prices, putting pressure on prices paid to growers.
- Substitutable: Consumers will accept substitute in-season fruit such as mandarins.
- A lack of price transparency: A data imbalance enables retailers to control and manage the pricing process while leaving growers with little insight into how market prices are determined.
Jeremy said that while growing demand, consolidation and productivity were all also key to sustainable long-term pricing, competition policy was a top priority for the NFF Horticulture Council, of which APAL is a member.
Noting that there is no magic bullet for these challenges, Jeremy proposed several strategies to help level the playing field including:
- a targeted policy for perishable products
- stronger powers, including penalties to allow regulators to actually enforce anti-competitive behaviour
- improved price transparency
- a stronger voice in Canberra.
At present, the two best levers at growers’ disposal are the Horticulture Code of Conduct and the Food and Grocery Code of Conduct.
Mick Keogh, Deputy Chair at the Australian Competition and Consumer Commission (ACCC), stressed to APAL Forum delegates the importance of understanding their rights and obligations, and knowing where they sit in relation to the two codes.
Growers should take the time to understand which code applies to their business model. If their produce is sold through an agent or merchant (wholesaler), the Horticulture Code applies. If they sell direct to a retailer, the Food and Grocery Code applies.
The Horticulture Code
The Horticulture Code of Conduct is a mandatory industry code prescribed under the Competition and Consumer Act 2010.
“If you fit the definition of a participant in the sector, it applies to you,” Mick said. “And potential prosecution for breaches applies to you. The aim of the code is to establish a set of standards for behaviours when growers are engaging with the next link in the chain. It’s not about setting prices or being prescriptive, and the ACCC does not get involved in disputes between growers and traders.”
In a nutshell, the Horticulture Code’s aim is to “improve clarity and transparency of trade between growers and traders”. The code requires all traders in horticulture produce to have a horticulture produce agreement. Growers and traders must deal in good faith, and failure to do so can lead to penalties.
The ACCC monitors the effectiveness of the code, conducts random compliance checks and investigates alleged breaches. The ACCC may take enforcement or other action, such as its proceedings against potato wholesaler Mitolo which resulted in a penalty of $240,000 for contraventions of the code.
The Food and Grocery Code
The Food and Grocery Code of Conduct, by contrast, is a voluntary code that applies to growers dealing directly with retailers, with the aim of improving standards of business behaviour in the food and grocery sector. All major Australian supermarkets (Coles, Woolworths, Aldi and Metcash) have signed up and are bound by the code.
The code establishes rights and responsibilities, obligations and protections (around issues such as delisting products, payments, or standards/quality specs), a process for applying for price increases, a dispute resolution mechanism, grocery supply agreements and a powerful ‘good faith obligation’ intended to build trust and standards of behaviour.
The ACCC can request information and documents from businesses to undergo compliance checks.
Food and Grocery Code of Conduct underutilised
Helen McKenzie, Code Arbiter for Woolworths, and Chris Leptos, Independent Reviewer, Food and Grocery Code, were united in their message to delegates: the code is an incredibly powerful tool, but the horticulture sector is failing to use it.
Helen explained her formal role, which involves dealing with complaints brought (in writing) by suppliers about matters covered by the code.
“If I receive a written complaint, I will take it to Woolworths and must investigate within 20 business days, considering whether the supermarket acted lawfully, fairly and in good faith according to the code,” she said. “If I find a breach by the supermarket, I can make a decision, such as varying the terms of the agreement or ordering Woolworths to pay up to five million dollars, with no right of appeal. But in the two and a half years since I’ve been appointed to this role, I haven’t had a single complaint.”
Chris said that growers want the solution to problems to be quick, cheap and fair. “The code has the potential to deliver on those elements – and is certainly quicker and cheaper than going to court. Retailers have to act in good faith. Five million dollars in compensation is on the table, but you haven’t used [the code]. I don’t know why.”
Why aren’t suppliers utilising the code? Firstly, Helen believes there is some scepticism and distrust among suppliers that the arbiter (Helen at Woolworths, Jeff Kennett at Coles) is in fact independent of the retailer. But a much greater issue is a perceived fear of retribution from the retailer if they are known to have raised an issue.
“I’ve heard this from so many suppliers across all categories that I’m satisfied this is a very real issue, whether it’s perception or reality, and it is getting in the way of the process working. We need to try to address this issue. We have a very clear code that has a specific provision to protect suppliers from retribution. The machinery is there, but the process is not working because … suppliers [believe they] will ultimately be worse off. I’ve heard this from so many people that I believe it,” Helen said.
In light of the fact that no formal complaints are being raised, Helen has expanded her role to embrace a more informal aspect, meeting as many suppliers as possible to have confidential discussions.
“There’s nothing in writing, and nothing passed to retailers without the suppliers’ consent,” she said. “Suppliers seek advice, raise issues and concerns. If I get the impression these are systemic issues, I go to Woolworths and advise them they have an issue in that area [in relation to the code].”
Does the Food and Grocery Code work? In terms of the formal process, the jury is out until suppliers are willing to raise a written complaint. But, informally, Helen’s conversations are showing every sign of success. In the meantime, growers and the industry as a whole can consider the following steps:
- Know your code and how you can use it.
- Get to know the code arbiters. Helen encourages growers to approach her informally to raise concerns or seek advice.
- As an industry, focus on increasing price transparency with the retailers to address the data imbalance.
Find out more about the two codes here:
To contact a Code Arbiter for Woolworths, Coles, ALDI or Metcash for an informal discussion or to lodge a complaint, visit https://grocerycodereviewer.gov.au/process/how-raise-complaint.
This article was first published in the Winter 2023 edition of AFG.